Brian Short, CMC, CRMS, GMA – Licensed Mortgage Professional
Many people are afraid to buy a home in times like these, with the economy tanking and home prices continuing to fall. But if you’re brave enough to stray from the herd, you might be in for the home-buying opportunity of a lifetime.
Ask for price reductions, improvements, closing costs — whatever — and the seller, desperate to get a contract, is likely to work with you but when the market starts improving, your negotiating power will start to diminish.
If you’re qualified to buy a home now, and the purchase makes sense for your situation, and you’re prepared to live in that home for at least five years, there are four reasons you may be headed for a great deal:
1. Affordability is better than ever.
According to the National Association of Realtors’ housing affordability index, homes are more affordable now than at any other point since the group started the index in 1970. The NAR’s affordability index is a measure of the relationship between home prices, mortgage interest rates and family income.
What’s your home worth?
Not all markets have experienced huge drops, however, so it’s wise to take a look at how far prices have fallen in your area. The Federal Housing Finance Agency’s Web site has a house price calculator that can help. Visit the calculator. http://www.fhfa.gov/
I have plugged in the information regarding my house in the Nashville market to see how values are beginning to turn in my favor as a homeowner. This means that values are starting to go back up and will never be as cheap as they are now.
MSA: Nashville-Davidson-Murfreesboro-Franklin, TN
Purchase Date: Second Quarter 2000
Valuation Date: Second Quarter 2010
Purchase Price: $225,000
Extimated Value: $314,781
When using the House Price Calculator, please note that it does not project the actual value of any particular house. Rather, it projects what a given house purchased at a point in time would be worth today if it appreciated at the average appreciation rate of all homes in the area. The actual value of any house will depend on the local real estate market, house condition and age, home improvements made and needed, and many other factors. Consult a qualified real estate appraiser in your area to obtain a professional estimate of the current value of your home. Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 requires that any appraisal used in connection with a federally related transaction must be performed by a competent individual whose professional conduct is subject to supervision and regulation. Appraisers must be licensed or certified according to state law.The House Price Calculator uses the FHFA Purchase-Only House Price Index for all states, including the District of Columbia, and for the largest 25 Metropolitan Statistical Areas and Divisions.
The median existing single-family home price was $184,200 in June, up 1.3 percent from a year ago. Single-family median existing-home prices were higher in 10 out of 19 metropolitan statistical areas reported in June in comparison with June 2009. The median existing condo price was $180,100 in June, which is 1.4 percent below a year ago. The national median existing-home price for all housing types was $183,700 in June, which is 1.0 percent higher than a year ago.
2. You have a large inventory to choose from.
In many places it is taking months to sell a home, creating loads of inventory — from new homes to existing homes to foreclosures. A large selection gives buyers more choices and drives down prices. And home sellers have gotten the picture.
Total housing inventory at the end of June rose 2.5 percent to 3.99 million existing homes available for sale, which represents an 8.9-month supply at the current sales pace, up from an 8.3-month supply in May. This is the largest amount of existing homes for sale, in terms of months of supply, since August 2009. Raw unsold inventory remains 12.7 percent below the record of 4.58 million in July 2008.
It’s fair to say that home sellers have become increasingly desperate. People who have had for-sale signs in the yard for six months are starting to become in tune with the reality of the situation. Buyers can take advantage.
But if you put off a purchase until inventory shrinks substantially, you might not get as good a price. And be forewarned: It’s nearly impossible to time the exact bottom of the housing market, and even if you do, there’s no guarantee you’ll make a killing.
Buy for quality of life . . . don’t buy on speculation. I wouldn’t buy a home expecting the housing market to rebound quickly in the next 10 years, and expect moderate gains in values when the turnaround does happen.
Historically, real estate appreciates about 5% a year over the long term. But as the country crawls out of a recession, many markets probably won’t see huge home-price gains any time soon.
3. Builders are offering big discounts.
Home builders are getting even more aggressive with their pricing. You may consider looking at completed new homes first because builders are offering such steep discounts. Plus, you’d have a warranty not only on the home itself, but also on the home’s appliances, he said.
Builders want to save their credit, save their brand, save their reputation and clear out inventory. They can go buy cheap land today with that cash.
My advice: Walk in with a pre-approval for a mortgage, make an offer, and then walk away without making a deal if you have to. Chances are, a builder will call back and reconsider that offer rather than let a potential buyer get away.
4. Mortgage rates are historically low.
It’s not just the price of the home that will affect affordability; mortgage terms will also affect your monthly payments. These days, rates are very attractive for conforming loans, those that can be purchased by mortgage agencies Fannie Mae and Freddie Mac. (The current limit is $417,000.)
Earlier this year, rates on the popular 30-year fixed-rate mortgage hit a level not seen in decades, and rates have stayed relatively near that low for weeks.
More mortgage help could also be on the way. Recently, President Obama said that his new economic plan would help lower the cost of mortgages for home buyers, although he did not give specifics.
But low rates don’t mean lenders are handing out mortgages easily. You’ll need good credit, a substantial down payment and a willingness to document your income in order to qualify for those great rates.